Cleveland’s suburban office market could emerge from COVID stronger than downtown

CLEVELAND, Ohio – For Logicalis, moving from downtown Cleveland to Beachwood came down to two things: price and size.

The suburbs offered both. The UK-headquartered information technology company vacated more than 48,000 square feet of downtown office space on January 1 for about a quarter of the space – 13,000 square feet – along Richmond Road.

“In this particular market, it made sense to look outside of downtown, and especially with large multinational companies (having) left extraordinary space that became available for less money,” said Mike McClain, director of Logicalis’ operations in the United States.

“The facilities themselves were exponentially better than where we were. And so that was the icing on the cake, to be quite honest.

The company is not alone. The pandemic has led executives to reconsider their company’s office footprint, including location, size and price. But those decisions could end up affecting Cleveland’s real estate market in a particular way — by causing more businesses to fill offices in the suburbs.

Preliminary data – while far from establishing any trend – shows that more businesses may decide that the benefits of being in a bustling, bustling city center with plenty of restaurants and entertainment options are outweighed by some of the conveniences. offered in the suburbs.

A report brokerage firm Newmark said the suburban Cleveland office market ended 2021 with less space available than at the start of the year.

It wasn’t much — 10,720 square feet of over 21 million — but compared to downtown Cleveland, it was progress. In the city’s central business district, more than 426,000 of the nearly 18 million square feet of office space was vacant at the end of last year.

The downtown vacancy rate was 22.5%, compared to 16.1% in the suburbs, even as more and more office space is taken off the market in anticipation of being turned into apartments. The report, however, indicates that more office space was taken up in the last three months of 2021 after a year of decline, and the momentum is expected to continue this year.

Real estate brokers and agents say one reason is that office space in the suburbs is often cheaper. A lot of it also comes down to ease. Often it is much easier for workers to walk from a free parking lot in front of a suburban building than to pay $12 a day to park in a garage and have to walk a longer distance to get there. at a downtown office.

“Access, I think, is key,” said Abram Schwarz, senior vice president of brokerage firm Lee & Associates’ Cleveland-area office. “More people I talk to say they want to be in a convenient office location, and I think downtown is going to struggle with that because of the parking issues and all the pandemic casualties downtown. -town.”

He said such priorities make office space off Rockside Road in Independence and Chagrin Boulevard in Beachwood attractive to many businesses.

Rico Pietro, director of real estate brokerage firm Cushman & Wakefield/CRESCO, also said “occupancy in suburban areas is as healthy as we’ve seen.” Some businesses have not found the downtown area as attractive and believe it has not fully recovered from the economic crisis the pandemic has caused, he said.

McClain said Logicalis, which had its offices in the Plain Dealer Building on Superior Avenue in Cleveland, also studied where its employees lived in the area to find space close to as many of them as possible. Most don’t live in the more than 20,000 downtown apartments.

Others — even those moving from suburb to suburb — have chosen their new space for equally practical purposes. Car dealership mogul Ken Ganley said his company is moving its headquarters from Brecksville to Broadview Heights – occupying nearly 14,000 square feet of space in a building on South Hills Boulevard – because the location is closer to many dealerships of the company.

“It’s all about geography,” Ganley said. “This location is kind of in the middle of all our retail stores.”

But brokers and developers say there is a caveat to some of the interest in the suburbs. There is more demand for the newer, nicer offices known as “Class A” spaces, as opposed to the less luxurious “Class B” spaces (which doesn’t necessarily mean dirty or dilapidated ), they said.

“People are adjusting their space down, some to accommodate working from home or remote workforces,” said Don Taylor, president and CEO of Fairlawn-based construction and development company Welty. . “Actually, they’re not necessarily looking to save money on rent. (What) we see is that people are willing to invest in the environment.

Taylor said he’s bullish on the office market, which is one reason his company is building a 125,000-square-foot office building in Independence, half of which will be occupied by accounting firm CBIZ.

An office building on Rockside Woods Boulevard North in Independence.

There is also the question of whether anyone is actually working in the rented space. Jessica Hyser, director of economic development for the town of Independence, said there is still demand for office space in this suburb, but the future is far from certain. A key question, at least from a tax collection perspective, is whether these spaces are or will be occupied.

“It’s an interesting phenomenon,” Hyser said. “We see businesses that still want to have a physical location. Does this translate into bringing employees back to the office? »

The exact number of companies likely to undertake such a step is not yet clear. Business executives with downtown offices continue to tout the benefits of working in an area with multiple hotels, restaurants and stadiums within walking distance.

A few businesses and groups have also moved downtown or renewed prestigious leases over the past year.

The newest is Benesch, Friedlander, Coplan & Aronoff, which is set to move from 200 Public Square to the eight-story Key Tower by the middle of next year. Others, including the United Church of Christ and business consultant AMS, also recently announced changes

“It’s great for Cleveland to have our business downtown,” said Benesch Friedlander managing partner Gregg Eisenberg. “While we might go to the suburbs or wherever, I think for us, we wanted to stay in the city and be in the same house we’ve lived in for almost 85 years.”

But this view may not be shared by everyone. A report from brokerage firm Jones Lang LaSalle showed nearly 540,000 square feet of suburban office space vacated overall in 2020, compared to more than 222,000 downtown.

Interestingly, however, over 33,000 square feet of “Class A” space has been taken up in the suburbs, while over 57,000 has been vacated downtown.

These numbers, while different from those in the Newmark report, show a similar trend. Andrew Batson, vice president and research director of JLL’s Cleveland office, said the discrepancies in the reports are likely due to differences in what time of year certain transactions were recorded. Other factors, such as borders and the size of a region, can also play a role.

But Pietro said a big part of what could determine the next few years is what some of the biggest downtown companies are doing.

While Benesch Friedlander has committed to downtown, as has Sherwin-Williams with its plans to build a 36-story, 1 million square foot glass office tower, the decisions of other major employers could give the tone at how often many companies want people to work in an office and therefore the space they need.

When they do, “then we’ll really see if there’s a meaningful change in the health of downtown as a result of COVID,” Pietro said.

So in the long run, who wins?

The answer may be nobody. Downtown and suburbs have advantages and disadvantages, and different companies may weigh them differently.

“Long term, is this a win-win scenario, downtown versus suburban? Batson applied. “I do not think so.”

Jose C. Birney